The present invention generally applies to situations in which two or more trading accounts participate simultaneously in an aggregated order involving the same financial or other instrument. More specifically, such situations typically involve accounts that are on the same side of a trade to be executed.
After orders to purchase or sell an instrument for different accounts are placed, they may be aggregated and a trade may be executed for a total size of the instrument. Traditionally, the total size is allocated among the accounts on a pro-rata basis based on the order size for each account. In most instances, a pro-rata allocation achieves fairness among the accounts involved in the trade. However, because the total size traded is often less than the aggregate order sizes for the accounts, such as when the original order size is not available, some accounts may receive an allocation that is disproportionate to the incurred transaction cost when a strict pro-rata allocation is applied. Typically, the affected accounts are associated with smaller order sizes when compared to other accounts participating in the aggregated order.
Accordingly, it would be desirable to modify a pro-rata allocation method so that these accounts are not systematically charged transaction costs when trades are executed for orders involving the accounts. At the same time, it would be desirable to modify the pro-rata allocation method in a manner that is fair and equitable to all trading accounts.